Q&A: Deep Dive into FLSA Part 1

Question:

I have an exempt employee who would like to earn extra money working in another department in a nonexempt role. She works 40 hours per week in the exempt role, and would work 15 to 20 hours per week in a nonexempt role. Would she automatically receive the overtime rate for each hour of nonexempt work if she works 40 hours in her exempt role?

Answer:

The primary issue is not how to calculate overtime, but rather whether you may have an employee classified as both exempt and nonexempt. Your employee may perform more than one job for you, but under the federal Fair Labor Standards Act (FLSA) regulations an employee must be classified as either exempt or nonexempt, butnot both.

Your employee’s exemption status requires an analysis of both positions to determine her primary duty (see 29 C.F.R. 541.700). The term “primary duty” means the principal, main, major, or most important duty that the employee performs. In your situation, the employee would remain classified as an exempt employee because her primary job duties are that of an exempt employee. Subsequently, you are not obligated by law to pay the employee any additional wages for her performance of the additional duties because she is earning a fixed weekly salary as an exempt employee, regardless of the number of hours per week she works.

However, you may pay the employee additional compensation for the additional work she performs without causing her to lose the exemption. The additional compensation may be in the form of additional salary, a flat sum, an hourly rate of pay, or another form of compensation as a reward for her additional time (see 29 C.F.R. 541.604).

Question:

Is minimum wage calculated on hours worked or hours worked plus performance-based earnings, thus subject to change each pay period? For instance, a nonexempt employee is paid $320 for 40 hours worked with $60 added for performance goals, totaling $380. Which amount is used to determine the employee’s minimum wage; $320 or $380? The minimum wage in our state is $8.50.

Answer:

The amount used to determine the employee’s minimum wage would be $320 because, under the federal Fair Labor Standards Act (FLSA), employers must pay nonexempt employees at least the applicable minimum wage for all hours worked up to 40 in the work week and the calculation of the minimum wage cannot include commissions or bonus/incentive pay. Certain credits may be permissible that would allow the rate of pay to fall below the minimum wage, but those credits are limited to tip credits and credits for food and lodging.

Therefore, in your example, if your employee is earning $320 per week for 40 hours of work, the rate of pay is $8 per hour. In your state, your minimum wage is $8.50 per hour. You would need to increase the rate of pay for hours worked by $.50 per hour so that the employee earns the effective rate of pay. The incentive payment will be in addition to the applicable minimum wage.

While employers must include commissions and nondiscretionary bonus payments in the calculation of overtime, commissions and any bonus or incentive payments are not included in the calculation of minimum wage.

Question:

I have an employee who is FLSA exempt. We have a PTO plan, but she took time off beyond that plan, which was unpaid (in full days). We agreed to that. Since she has exhausted her PTO balance for the year, if she takes any more days off, we are planning to not pay her. The employee recently came to us questioning not getting overtime pay, since sometimes she works more than 40 hours, so she can “catch up” on the work she missed on the days the took off without pay. Are we able to dock her pay when she missed a full day after she has exhausted her PTO plan? Can we continue to not pay overtime to her if she works more than 40 hours that week or any other?

Answer:

Based on the details provided, it appears you are handling the situation correctly. There are few times when an employer can reduce an exempt employee’s salary. In this situation and according to your PTO policy, if the employee has exhausted her accruals and performs no work on a workday, you can reduce her salary in full-day increments. This is dependent on you offering a “bona-fide” paid time off plan, that is correctly communicated and applied. If you do not offer PTO, the standard FLSA rules apply, that if the employee works even on hour in a week, they are paid for the whole week. But since you do, you are able to reduce the salary in whole day increments in accordance to that policy.

As an exempt employee she is not eligible for overtime pay. Offering to pay overtime will cause you to lose the exemption. If you are unsure that the position is properly classified as exempt, consider reviewing the FLSA link provided below. The following resources are recommended:

Question:

Under Illinois law, are employers required to track an exempt employee’s hours worked? Will this impact the employee’s exempt status?

Answer:

Yes, under Illinois law employers are required to track an exempt employee’s hours worked. No, this will not impact the employee’s exempt status.

According to Ill. Admin. Code tit. 300.630, regardless of an employee’s status as either an exempt administrative employee, executive, or professional, every employer must make and maintain records of the hours worked each day in each workweek for each employee. These records must be kept for at least three years. This tracking of time will not impact the employee’s exempt status. In addition to the Illinois law requirements, the federal Department of Labor has further clarified that the federal Fair Labor Standards Act (FLSA) does not limit an employer’s ability to track working time. Consequently, it is not a violation of the FLSA or its implementing regulations for you to track an exempt employee’s working time.

However, make sure to manage these individuals in relation to their work (exempt), not their time (nonexempt). If time management is required, consider that the position is likely nonexempt and requires a status change.

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About the author, Rhamy

Rhamy grew up watching and working with his mother and grandmother in the seniors insurance market. This familiarity with the struggles faced by people trying to navigate the incredibly complicated and heavily regulated healthcare market led him to start Poplar Financial while working on his degree at the University of Memphis. After completing his MBA and Bachelors in Finance and Economics, Rhamy guided Poplar Financial through the disruptive opportunity that is the Affordable Care Act. Since then Poplar Financial has received numerous awards from major insurance carriers, and has completed its fourth year in a row of doubling in size. Now his team focuses on the processes around human resources, and specializes in providing companies with between 20 and 1000 employees with the payroll, benefits, and HR needs.